Massive Rally or Crash?

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Contributing editor Charles Hugh Smith notes that markets are at an important inflection point. The direction things take from here may likely be apparent within the next few days.

As I noted in my previous exploration of the U.S. dollar and the technical evidence for a long-term uptrend in the dollar index DXY, global markets for stocks, commodities and currencies are on a simple see-saw: On one end is the U.S. dollar, and on the other are all other major currencies, global stock markets, commodities, etc.

The U.S. stock market has been recently surging on hopes of a comprehensive settlement to the European debt/banking/euro crisis. Technically, this surge exceeds the recent trading range, and thus is seen by many traders as a valid breakout; i.e., the signal a new Bull market is underway.

This aligns with the views of many experienced technical analysts, who expect a strong rally to start from here and last into early March. The reasons many expect such a rally, despite the headwinds of global recession, are seasonal and cyclical: Stocks almost always rally strongly in Nov.-Dec., and the third year of the presidential cycle (2011) is generally positive for stocks. In addition, various timing tools and indicators can be interpreted as supportive of a major rally from this point.

A much smaller number of analysts (including Chris) see increasing probabilities of a global stock market crash.